The ever changing economies and climate, as well as the vast developments in technologies, transportation and communication methods, often push companies to evolve to be able to keep up with the trends in order to stay in business and meet customer needs and wants (Ristovska, & Ristovska, 2014). This is what essentially drives companies to go global. Mckibbin (2000, p.1) views globalization as the “increasing interdependence of economic, social and political activities across national boundaries” while Al-Rodhan, & Stoudmann (2006, p.5), views it as “a process that encompasses the causes, course, and consequences of transnational and transcultural integration of human and non-human activities”.
From both these definitions we can see that globalization brings in aspects of different companies moving from country of origin and looking for markets all around the world. With the expansion of business, it is a given that the global local dilemma cannot be avoided. The global local dilemma relates to the extent to which products and services are advertised and sold to either to blend in to meet the requirements of specific national markets (adaptation) or are sold the same way (standardization) across national boundaries or are made (Johnson, Scholes and Whittington, 2011).
An example of adaptation was when McDonalds branched to India. The original hamburger products that were and are served in other countries are not served in India due to cultural and religious constraints. In respect to this, McDonald’s have had to adjust their product offering which included also using ingredients from the local cuisine and curry to suit the local market (Membe and Loukakou). Companies such as Nike, Levi’s and Coca- Cola are recognized the same way across all markets thus are advertised and sold the same way, globally. This is an example of standardization. I agree with Vrontis, Thrassou, & Lamprianou’s (2009) though that standardization enables companies to maintain a consistent image and minimizes confusion for highly traveling consumers, when they see the product or service, unlike adaptation.
Choosing to go international can be beneficial for a company but it is vital for the company to consider all factors that may play a role and affect it succeeding in the new market or not (Rastogi and Trivedi,2016). Rastogi and Trivedi (2016) suggest that the best framework for this would be the PESTEL framework and describe it as a strategic management technique which can be used effectively in external risk identification process.
PESTEL is an acronym for Political, Economic, Social, Technology, Environment and Legal. Gillespie (2007) explained that things like international trade, EU engagement, taxation policies, are examples of Political factors. He says that Political factors can impact on many areas of a business such as the health of the nation (economic environment) and the quality of infrastructure of the economy such as rail and road systems. Economic factors are key drivers of the overall performance of an economy which directly affects a company and has lasting effects. For example, a rise in inflation rate would affect the way companies’ price their products and services and would also affect the purchasing power of consumers (Rastogi and Trivedi, 2016). Sociological factors looks into all practices that affects the market and community. These include culture and tradition, population dynamics, advertising and media (which brings in the aspect of adaptation and standardization of products and services) and so forth. An example of this can be buying trends for the countries like the United States where there is high demand during the Christmas holiday season unlike in countries in like India, due to the population of Christians. (Rastogi and Trivedi, 2016).
Sammut and Galea (2015) feel that with technology, there is a rapid pace of change driven by innovation that can either mark the demise of certain industries or create opportunities for new industries. . For instance, innovations in the electronic processes such as being able to deposit money via the ATM and no longer having to queue inside the bank branch to be assisted. It’s been highlighted that (Gillespie,2007) with major climate changes occurring due to global warming and greater environmental awareness, the environment is becoming a significant issue for firms to consider. For example, changes in temperature can impact on industries such as farming and tourism. (ibid) Further argues that age and disability discrimination legislation, an increase in minimum wage and greater encouragement for firms to recycle, are example of laws that affect an organizations actions in the UK. The legal factor takes all legal aspects such as labor laws, consumer protection, imports and exports into account. These laws affect the business environment (internal and external) the business operates in (Rastogi and Trivedi, 2016).
Although it may be helpful to consider the entire company when using PESTEL, managers may want to reduce it to a certain part of the company. Coca Cola and Disney, for instance, have different parts to their overall business, sometimes even different brands. It will then help a company focus on factors relevant to that part of the company (Gillespie, 2007).
Growth or expansion are typical reasons why companies should go international (Twaroska and Kakol, 2013). There are four broad groups of industry globalization drivers and they cover all major industry conditions that affect potential for globalization (Agnihotri ; Santhanam, 2002). The first one is competitive drivers and this includes the competitors’ global strategies, interdependence between countries (like Botswana and South Africa) and volume of imports and exports in the industry (Yip, 2003). Cost drivers is the second and it entails factors outsourcing whereby companies contract the production of certain parts or Subcontracting the production of certain parts or the production of certain parts or the entire end product to countries that have lower labor costs and less rigid or not vigorously enforced labor laws (Moak, 2017).
Market drivers are part of them and they entail growth of global and regional channels when it comes to the supply chain, convergence of lifestyle and taste to suit each target market and transferable marketing (global local dilemma: standardization or adaptation) and similar customer needs (Yip,2003). The last global driver is the government and this gives reference to host government policies e.g. issues of minimum wage policies, child labor laws, and creation of trading blocs such as SADC, SACU and the reduction or increase in tariff barriers (ibid). Managers need to see which driver directly affects their business and to what degree and assess if going international would be worth it or too much of a risk.
When it comes to the actual mode of entry managers will pick to expand, Uppsala model comes up. According to Carneiro, da Rocha and da Silva (2008) the Uppsala model asserts that a firm’s market knowledge (or lack thereof) would be the driving force in it internalization path. The model contends that (1) choose to first enter countries that are nearer to their own and later moving to farther countries and that (2) investment increases with time as the company gains experience and knowledge. Even though the Uppsala Model is a risk-aversion model Carneiro, da Rocha and da Silva (2008) also point out its drawback in the sense that the model does not address the impact of the characteristics of specific services (or goods, for that matter) on the internationalization path.
The entry modes include Franchising/licensing and according to International Franchise Association (IFA), “the agreement or license between two legally independent parties which gives: a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor)” (Belu ; Caragin, 2008, p.94). Examples are McDonald’s, Pizza Hut, Burger King, etc. and they (franchisee) are given continuous support in national and regional advertising, operating procedures and ongoing training until they are fully on their feet. However, as a franchisee, you are required to operate the business in accordance with the procedures and restrictions laid down in the agreement by the franchisor. If you fail, your contract is liable for termination (Belu & Caragin, 2008). Joint venture means the shared ownership of two partners of which one located in the home nation and the other located in the host nation (Johnson & Tellis, 2008; Barua & Chowdhury, 2014). Benefits include a local partner having more insight about aspects such consumer needs, trends. Local competitors, which helps the business (Wilson 2006; Barua & Chowdhury, 2014). Downsides includes high risk of losing control over technology to a venture partner, and dilution of profits (Barua & Chowdhury, 2014).
Wach, et al. (2014) and Wach (2012) define a wholly owned subsidiary as the start-up of a foreign subsidiary that is fully owned and funded by the parent company. The advantages of wholly owned subsidiary are that a company can enhance its global performance on the basis of competitive advantages but the downside is that it’s a lengthy, complex, and costly process which might is a gamble, at the end of the day so managers need to be sure about doing it (Barua ; Chowdhury, 2014). When it comes to exporting, it depends if the company wants to take the direct or indirect route. With indirect export modes the manufacturer uses independent export middlemen located in its own country, so that the manufacturer has no direct contact with international customers or partners and is treated as a domestic transaction while with direct export, exporters assume the duties of intermediaries and make direct contact with foreign customers. .Benefits of each include physical presence on foreign markets (direct) and low staffing requirements which means salary costs are reduced (indirect). Their downsides though include potential trade barriers to entry (direct) and full dependence on the domestic intermediary which means if they do not handle things right and ethically, the company stands to lose out a lot on business opportunities (indirect) (Wach, et al., 2014 p.138; Wach, 2012, p. 101–103).
In conclusion, I am of the view that managers need to understand that sometimes, it is not a matter of choice to enter international markets, but a necessity to gain market share in new or established markets. Overcoming challenges in internalization and global local dilemma requires companies to fully make market assessments in order to understand how factors such as culture, taxation policies, etc. may affect their marketing and sales in new markets. Choosing appropriate entry modes for your business is vital and may result in financial loss and disastrous entry as experienced by Meril Lynch (a banking company) in Japan (Hill, 2002). Managers must ensure that with all they do, they must protect the interests of all stakeholders involved and act ethically at all times.
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